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Goverments issued more debt than ever last month

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The economic impact of the coronavirus pandemic prompted governments to issue more debt than ever before in April, according to data provided by the Institute of International Finance.

The Covid-19 outbreak has meant countries have effectively had to shut down, with many governments imposing draconian restrictions on the daily lives of billions of people.

To date, confinement measures have been implemented in 187 countries or territories in an effort to try to slow the spread of the virus. The restrictions are expected to result in the worst economic shock since the Great Depression in the 1930s.

It has forced world leaders to quickly deploy emergency financial measures and usher in aggressive stimulus packages in an effort to avoid a devastating economic collapse.

“A rise in debt is inevitable. This is going to happen — we are in a stressful time so there is no reason to question why they are borrowing,” Emre Tiftik, a debt specialist at the Institute of International Finance, told CNBC via telephone.

The IIF’s Global Debt Monitor found that global general debt issuance (bonds and loans) hit a record high of $2.6 trillion in April, up from the previous record issuance of $2.1 trillion in March.

To put that into context, Tiftik said the global debt issuance figures were more than two times higher than historical norms. He argued it reflected the extraordinary scale of global debt accumulation as governments scramble to offset the economic impact of an unprecedented global health crisis.

The U.S. Federal Reserve Building stands in Washington, D.C., U.S., on Wednesday, June 24, 2009.

Brendan Smialowski | Bloomberg | Getty Images

It is “scary but, again, it needs to be done so we are trying to address the liquidity problem,” Tiftik said.

The U.S. government was found to have accounted for $1.4 trillion of total worldwide general debt issuance in April, and $1.2 trillion in March. The world’s largest economy has committed to the largest rescue package of any country by far.

‘Keep the receipts’

The International Monetary Fund has said a rapid rise in global public debt could pose risks once the threat of the pandemic fades.

In a report published April 15, the Fund said: “In times of emergency, the implication for policymakers is do whatever it takes but make sure to keep the receipts.”

At the time, global authorities had already taken fiscal actions amounting to roughly $8 trillion to contain the pandemic and limit its damage to the economy.

The pandemic and the associated “Great Lockdown” have led to increases in debt beyond those recorded in the global financial crisis, the Fund said, with public debt ratios likely to stabilize at newer — higher — levels as the pandemic abates.

Signal hanging with a message in Spanish that reads ‘protect your mouth with a mask’ in the empty Buenos Aires obelisk landscape during the government-ordered lockdown on May 01, 2020 in Buenos Aires, Argentina.

Ricardo Ceppi | Getty Images

Ian Shepherdson, chief economist at Pantheon Macroeconomics, told CNBC via telephone that the relatively small number of voices carping from the sidelines about the dangers of rising public debt were “missing the point completely.”

“Public debt is a second-order question, maybe even a third-order question now given the havoc that the virus has wreaked on the world economy,” he said.

“The primary objective is to limit or ameliorate the damage, it can’t be prevented that’s for sure, but to try and use fiscal policy to prevent the economy from being a wasteland for when the virus is vanquished.”

“It is not really a choice,” Shepherdson continued. “You could wear the hair shirt and say: ‘We are not going to spend the money because we want to protect future generations.’ But, the future generation will have nothing to inherit because the economy will have been completely destroyed — and that can’t be in anybody’s interests.”

‘Who is going to benefit from this extra debt?’

At the start of the year, the World Bank had warned about the intensifying risk of a fresh global debt crisis, saying the build-up of global borrowing since 2010 had been “the largest, fastest and most broad-based increase” since the 1970s.

The group had urged governments and central banks to recognize that historically low interest rates may not be enough to offset another widespread financial meltdown.

The coronavirus crisis and historically vast fiscal spending packages have since prompted some to warn that developed economies may find themselves on the brink of a debt crisis over the medium term.

“We can save the day by borrowing money, but the issue is where are we going to use this money? Who is going to benefit from this extra debt?” the IIF’s Tiftik said.

A man wearing a surgical mask works on his computer on Broadway Avenue as New Yorkers practice “Social Distancing” because of the COVID-19 pandemic on April 12, 2020 in New York City, United States.

Roy Rochlin | Getty Images

“Right now, we are trying to stop the bleeding, but now we start to focus on the healing. So, how are we going to heal it so that it is going to be much better for everyone?”

When asked whether the coronavirus outbreak might prove to be the trigger for another global debt crisis, Tiftik replied: “Everybody is doing as much as possible to make sure that this is not the case.”

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SoftBank leads $500 million investment in China’s Didi

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Chinese ride-hailing company Didi Chuxing shows off its autonomous vehicle fleet during the World Artificial Intelligence Conference in Shanghai, China in August 2019.

Didi

Chinese ride-sharing giant Didi Chuxing raised more than $500 million in funding for its autonomous driving division, in a round that was led by SoftBank’s Vision Fund 2.

The company announced Friday that its self-driving car business would use the mammoth investment to continue funding research and development and “accelerate” the launch of driverless vehicle services in China and abroad.

Didi plans to roll out a so-called “robo-taxi” service in Shanghai soon. Once the product is live, the idea is that users will be able to hail self-driving cars through the firm’s app. Tiger Qie, Didi’s vice president and chief technology officer of its ride-sharing unit, told CNBC back in November that the aim was to launch the new service “very soon.”

It’s noteworthy that the fresh capital comes from SoftBank’s second Vision Fund. The Japanese telecom giant is the only investor to have actually committed money to the fund, and there are fears that Vision Fund 2 could be in jeopardy due to the poor performance of its initial $100 billion investment vehicle.

Mubadala, Abu Dhabi’s sovereign wealth fund, was a backer of the Vision Fund but is now said to be in two minds over whether to commit to the second one. A source told CNBC last week that Mubadala is “super spooked” by the performance of SoftBank’s initial tech fund.

Didi President Jean Liu told CNBC at the start of the month that the company’s core ride-hailing business was still profitable despite concerns over the impact of the coronavirus pandemic. She added that the business has seen a pick-up in activity after the outbreak had died down in China.

Didi’s ambition is to launch fleets of driverless cars in a number of locations in China. The company gave a nod to Beijing’s ambition to build a “comprehensive digital infrastructure network” based on high-tech innovations like 5G mobile internet, artificial intelligence and the internet of things.

“Didi also plans to further deepen cooperation with global upstream and downstream auto industry partners towards mass production of autonomous driving vehicles, with the aim of advancing the transformation of the global automotive and transportation industries,” the company said in a statement Friday.

The firm added that it currently has licenses to test self-driving cars on the roads in Beijing, Shanghai and Suzhou in China, as well as California in the U.S.

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First flight for world’s ‘largest all electric commercial aircraft’

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The planet’s “largest all electric commercial aircraft” has completed its maiden flight, the latest example of a zero-emission form of transport taking to the skies.

The Cessna 208B Grand Caravan took off from an airport in Moses Lake, Washington, on Thursday and used a 750-horsepower all-electric motor developed by a Redmond-headquartered company called magniX. Work to convert the aircraft was undertaken by magniX and another firm called AeroTEC. 

“The iconic Caravan has been a workhorse of industry moving people and transporting goods on short routes for decades,” Roei Ganzarski, the CEO of magniX, said in a statement on Thursday.

“This first flight of the eCaravan is yet another step on the road to operating these middle-mile aircraft at a fraction of the cost, with zero emissions, from and to smaller airports,” Ganzarski added.

“These electric commercial aircraft will enable the offering of flying services of people and packages in a way previously not possible.”

Thursday’s flight represents another step forward for electric aircraft, albeit a small one. In December 2019, the world’s first fully-electric aircraft for commercial flight completed a test in Canada. The DHC-2 de Havilland Beaver seaplane used in that flight was also fitted with a motor from magniX.

According to the International Council on Clean Transportation, “commercial aviation accounts for about 2% of global carbon emissions.” For the transportation sector as a whole, its responsible for around 12% of all carbon dioxide emissions.

In a bid to reduce the environmental impact of aviation, some airlines, such as KLM, have used bio-fuels to power their planes. The last few years have also seen a number of innovative aircraft complete journeys. 

In 2016, the Solar Impulse 2, a manned aircraft powered by the sun, managed to circumnavigate the globe without using fuel. The trip was completed in 17 separate legs.

In 2018, an unmanned solar-powered aircraft from European aerospace giant Airbus completed a maiden flight lasting 25 days, 23 hours, and 57 minutes.

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Gautier Cognac sells at auction for nearly $150,000

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Gautier Cognac 1762.

Sotheby’s

A bottle of Gautier Cognac, the oldest vintage ever sold at auction, was bought in online bidding for £118,580 ($145,842). 

The bottle was bought by a private collector in Asia and was the largest of three bottles of Gautier Cognac, which dates back to 1762. 

One of the other two bottles is housed in the Maison Gautier museum in France, while another sold for £48,000 at an auction in New York in 2014. 

This last bottle had been preserved, along with the other two, in a cellar since the end of the 19th century. 

The now former owner said the bottles were brought back to his great grandparents by their adopted son, Alphonse, who had been working in the Cognac region in the 1870s. 

The Gautier Cognac was sold in an auction of other rare spirits, which closed Thursday and was organized by auction house Sotheby’s. The online auction made a total of £1.5 million from the collection.

Jonny Fowle, Sotheby’s Spirits specialist, said the cognac should still be drinkable and while it will have aged in the bottle, the level of liquid inside suggests the seal has not been compromised and the evaporation is minimal.

However, he expected there to be some “old bottle effect,” which sometimes “can impart very pleasant tropical notes and at other times less appealing porridge-y notes.”

Brandy has to be made in the French commune of Cognac to bear the name, like the sparkling wine made in the Champagne region of France. 

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